The US Federal Reserve is contemplating the launch of a new category of payment account designed to facilitate participation from smaller companies in the central bank’s payment system, potentially resolving the banking access issues faced by the crypto industry.
The proposed “payment accounts” aim to offer complete access to fintech companies wanting to use the Fed’s payment services, which are now primarily available to large banks and financial institutions through the Fed’s “master accounts.”
“I believe we can and should do more to support those actively transforming the payment system,” said Fed Governor Christopher J. Waller during his address at the Payments Innovation Conference on Tuesday, further stating:
“To that end, I have asked Federal Reserve staff to explore the idea of what I am calling a ‘payment account.’
The payment accounts would be accessible to all legally eligible institutions that currently provide payment services via a third-party bank.
The “skinny” master accounts would allow access to the Fed’s payment infrastructure, while “controlling for various risks to the Federal Reserve and the payment system,” according to Waller.
Although the proposal is still in its exploratory phase, it reflects a significant movement towards the integration of fintech and crypto payment firms into the traditional financial (TradFi) landscape.
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Industry observers interpreted the news positively for the crypto sector, particularly as many companies have encountered debanking difficulties previously.
Under former US President Joe Biden’s administration, at least 30 tech and crypto founders were refused banking access, which some insiders labeled as a coordinated initiative known as “Operation Chokepoint 2.0.”
“THANK YOU, Gov Waller, for recognizing the significant error the Fed made in restricting payments-only banks from Fed master accounts, and for revisiting the access rules implemented to exclude @custodiabank,” expressed Caitlin Long, the founder and CEO of Custodia Bank, in a Tuesday X post, adding:
“The Fed informed courts that such firms would jeopardize financial stability by being inherently unsafe & unsound. Thank you for acknowledging that’s not true—it never was!”
The downfall of crypto-friendly banks in 2023 triggered the first allegations of Operation Chokepoint 2.0. Critics, including venture capitalist Nic Carter, characterized it as a government strategy to coerce banks into severing connections with cryptocurrency businesses.
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Fed is “hands-on” in exploring tokenization, smart contracts, and AI-based payments
The Fed has been delving into blockchain technology for payments even prior to proposing the concept of the “skinny” master accounts.
The central bank has been investigating both blockchain and artificial intelligence for payment-related applications, Waller stated, adding:
“We are also looking forward, conducting hands-on research into tokenization, smart contracts, and the intersection of AI and payments for implementation in our own payment systems.”
“We do this to comprehend the innovation occurring within the payment system, as well as to assess whether these technologies could present opportunities to enhance our own payment infrastructure,” Waller concluded.
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